The Philippine central bank said it is closely monitoring global oil price developments and their effect on the domestic inflation rate.

During a virtual briefing on Thursday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said, “[T]he BSP will continue to monitor and update the oil price outlook as it remains highly uncertain given evolving developments related to the pandemic and the uneven global recovery.”

Changes in supply-demand dynamics, he said, have driven global oil prices upwards in recent months.

The uptrend in global oil prices in recent months has been driven by changes in supply-demand dynamics. Improved prospects in global demand as countries gradually recover from the pandemic and the Organization of the Petroleum Exporting Countries Plus production cuts have pushed oil prices higher in 2021 compared to the previous year’s levels.

This shift in oil price dynamics, according to Diokno, demands additional central bank supervision because of the implications for future inflation.

“As a net oil importer, the Philippines closely monitors global oil price movements. Historically, a rise in global crude oil prices tends to be associated particularly with higher transport inflation rates . . .,” he said.

As global oil prices have rebounded, higher pricing of domestic petroleum commodities has been felt, the central bank chief continued. As a result, year-over-year non-food inflation has been continuously rising.

Nevetheless, Diokno said that the Bangko Sentral has already factored in the recent increase in global oil prices in its most recent baseline inflation projections, which represent a target-consistent inflation trend throughout the policy horizon.

“Despite the recent uptrend in oil prices, the latest baseline forecasts indicate that inflation could settle close to the high-end of the government’s target range of 3.0 percent ± 1.0 ppt (percentage point) for 2021 at 3.9 percent and at the midpoint of the target for 2022 at 3.0 percent.”

As a result, Diokno said the BSP is watching for any second-round effects that would need monetary intervention, even while underlying inflation and the overall inflation outlook in the Philippines remain manageable due to the domestic economy’s slack.

BY MEYNARD DELA CERNA